TONY Lennox, CEO of Orion Minerals since May, is hoping to deliver on the mineral development firm’s decade-long promise of copper production, starting with a financing plan that will most likely feature upfront metal sales. If he is successful, the first copper concentrate production will be by Christmas. In 2026.
The company needs about R6.7bn to redevelop the entire Prieska copper-zinc mine in South Africa’s Northern Cape. The mine, which operated in the 1970s, is forecast to produce 22,000 tons of copper and 65,000t of zinc a year based on a feasibility study completed in March.
To accelerate the project, Lennox’s Orion will first develop the shallower part of the ore body it calls the Uppers Project, expected to cost A$50m (R582m). Selling copper in an offtake agreement is the “go-to” first step in funding. The trade-off to this is that it may cap the upside of the price of copper, a much-desired metal in the critical minerals family that is expected to run major supply deficits.
Nonetheless, that finance may then encourage the Industrial Development Corp to increase its current R150m convertible loan, equal to a 16% stake in the Prieska project. In addition, an existing arrangement with streaming and royalty company Triple Flag Precious Metals, which agreed to provide US$80m (R1.44bn) for the whole project, could also be restructured now that Orion is thinking in terms of phasing the project’s production.
“Over its 4.5-year life the Uppers of Prieska will produce about 70,000t of finished copper, equal to about 1,700t a month,” says Lennox. “It’s a small amount, but we intend to get some match fitness.” December 2026 production won’t be huge but it’s a start for a company that has been long on promise but short on delivery.
Lennox acknowledges the enormous contribution of former CEO Errol Smart, whom he replaced. Smart is a mainstay of the South African exploration industry and fought for the project in trying circumstances. He sometimes cut a beleaguered figure when talking about government inefficiency and corruption and was often the lone voice.
Acknowledging this, Lennox also says he intends to bring a more collaborative approach to Orion. “I think we want to get away from the one-stop approach,” he says.
Lennox, a veteran of the industry, has form with copper production. He was MD of Palabora Copper which, in the early 2000s, was considered the world’s deepest mine of its kind. If a mine can conjure majesty, Palabora Copper’s perfectly shaped conical open-pit mine would be it. Aerial shots of the Palabora mine make it look almost alien.
Orion is one of only a few minerals development firms listed on the JSE, largely owing to the poor job the government has made of encouraging risk capital. Another is Southern Palladium, a platinum group metals exploration firm that is bringing its 70%-owned Bengwenyama project, on the eastern limb of the Bushveld complex.
As with Orion, Southern Palladium has found it tough to raise money and has therefore reduced its capital call after an optimised feasibility study. The study recommended developing Bengwenyama in two stages. The first will cost $279m against the $452m peak funding of the previous study. First stage output is 200,000 ounces a year in PGMs before doubling up in the second stage.
Southern Palladium MD Johan Odendaal says his firm looked at 29 different financing options before landing on the two-stage development plan.
Shaping its opinion was a roadshow to North America last year. The capital pool in the US in particular is deep and varied and accounts partly for the exodus of UK firms from the London Stock Exchange. But Odendaal found the US cautious about South Africa, though interested in platinum.
“There’s still a lot of caution there,” says Odendaal. “I think our options for the bigger capital raise will certainly be Australia, London and then, of course, South Africa.”
Odendaal says Southern Palladium can “gear up” the firm’s balance sheet with 55% debt to equity at the lower capex number. Cash flow from the first stage can then be used to help finance the later expansion, by which time new supply will be limited.
The recent improvement in PGM prices — about 60% for platinum this year and 40% for palladium — is linked to depleted inventories among auto manufacturers, amid an acceptance that supply is not about to increase from South Africa.
“It’s always difficult to tell where we are in the cycle,” says Odendaal. “I say it will be driven by the supply deficit in particular, and we’re seeing it now. But the real uptick will come through if we get further improvement in global growth.
“Hopefully, if we look at where we are now and what is happening, hopefully the stars will align by the time we do the big capital raise.”
A version of this article first appeared in the Financial Mail.
